general outlook for 2008 · 2014. 2. 21. · in gann’s forecasting course he said: “stocks move...

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General Outlook For 2008

The individual who makes money buying stocks in 2008 will have touse far greater discrimination than ever before in selecting the right stocks tobuy. When once stocks have reached a final top and start trending down,they will continue to work lower and rallies will get smaller. Those whohold on and simply hope will likely have bigger losses. The markets willmove over a very wide range and sharp, severe declines will be followed byeven quicker rallies. It will be necessary most of the time for a trader to bevery agile and manage positions quickly in order to take advantage of theopportunities as they develop in an active market.

This year occurs in a cycle, which shows the ending of the 5-year bullmarket phase caused by the planet Saturn and the potential beginning of aprolonged bear campaign. The bull market campaign, which began inOctober 2002, has lasted as expected and was typical based on the history ofthis country. As W.D. Gann’s work illustrates: “There are usually twosignificant Bull Markets every thirty years. Typically, the 1st Bull Marketwill begin in years ending with a “2” such as 1922, 1952 and 1982. The 1stBull Market is usually longer than the 2nd Bull Market and typically ends inthe 9th or “0” year of the pattern (1929, 1959, 1990) with a majorcorrection in the “7th” year like 1927, 1957 and 1987. The 2nd Bull Marketleg typically begins in the “12th” year of the pattern (1932, 1962, 1992). Itis usually shorter than the 1st leg and ends in the “17th” year on average(1937, 1967, 1997) after which a consolidation or sideways pattern ofapproximately 13-years begins with a slight upward bias.”

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In Gann’s forecasting course he said: “Stocks move in 10-year cycles,which are worked out in 5-year cycles – a 5-year cycle up and a 5-year cycledown. Begin with extreme tops and extreme bottoms to figure all cycles,either major or minor”. From here on he explains his rules for addingspecific cycle lengths or time periods to tops and bottoms. This is where youneed to use the planetary periods to calculate the future turning point.

So here we see once again the usefulness of Gann’s marketperspective, which was also verified by the Foundation for the Study ofCycles. The Bull campaign began in 2002 and initiated a major correctionafter a 5-year run in the “7th” year of the pattern. In addition, this time periodalso brought in the anticipated business activity top forecasted by thenumber sequence work of Samuel Benner. Typically, share values are lowera full 2-years after the projected date. So, here we would expect stock pricesto be generally lower going into 2009. Incidentally, the next 30-year sectionof Gann’s forecasting pattern begins with an anticipated low for 2012. Thisyear also falls in line with Samuel Benner’s sequence work for predicting“periods of hard times and low stock prices.” Representing the ideal time toaccumulate stocks. The 5-year negative influence of Saturn also terminatesaround late September early October of 2012. My cycle work or DTF-Barometer shows a confirming low in 2009 coinciding with Benner’ssequence.

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The fact that both the Dow 30 & S&P500 have attained new highsduring the negative phase of the 36-year cycle, i.e. “The Super Bear Market”section typically means that when declines occur, they must be in proportionto the advance to balance out. The year 2008 will likely witness some sharp,severe panicky declines in many high priced stocks. The only positivesupport for stocks is that 2008 is an election year cycle. Looking back atother years ending in “8” that were also election years, we find: 1988, 1968,1948, 1928, 1908 and 1888. Most years were sideways basically ending theyear + or - %5. The years 1908, 1928 were the only election years that hadstrong bull trends throughout their years and 1988 finished up +12% in apattern that was very choppy and volatile. The election years of 1968, 1948and 1888 were basically flat years where the market finished up %5 in 1968& 1888 and down %5 in 1948.

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Looking at all years ending in “8” we find that the best opportunity tobuy stocks for appreciation has historically been the period from late March,early April, where stocks generally advance into August or September. Thebasic Stock Market pattern for election years ending in “8” is as follows:


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Further narrowing our list of market patterns based on election years endingin “8” we find that the years 1968 and 1948 occur in similar flat sections ofthe summation wave of the 36-yr and 42-yr pattern.



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As a result of focusing on years that are in a similar section or phase of theoverriding larger cyclic pattern the decennial patterns for these years aremuch more alike and their basic forms tend to follow one another quite well.The main difference in their overall behavior is the change in trend thatoccurred in November for 1948.


The year 2008 being in a similar flat section of the 36 & 42-yearsummation wave should perform similar to these two curves. Here we seethe period from March/April is highlighted to be the best time to purchasestocks for a short pull to June/July. Another potential purchase can be madeif the market declines into August with an exit strategy to liquidate byOctober 25th.

Looking at the next chart showing the combined influence of the outerplanets: Jupiter, Saturn, Uranus, Neptune and Pluto, we see that the year1948 shows a similar decline or reaction in the summation wave of theseplanets. In other words, the year 1948 appears to be the best overall fit foranticipating the price action of 2008. This is also Gann’s master cycle or 60-year time factor, which typically works well when you use it in view of thelarger patterns involved. Most long-term economic forecasts are based onthe Kondratieff or 'K' Wave, which is the theory that capitalist economiesare prone to major economic cycles lasting 50 to 60 years


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Planetary celestial longitudes for the above chart were converted to wave amplitudesusing the trigonometric cell calculator -SIN(X*PI()/180), where X is the celestial longitude indegrees. The factor PI()/180 converts the degree measure to radian measure required by theMicrosoft Excel program. Composite fundamental waves were calculated by summing the waveamplitudes of individual planets, starting with the outermost planet Pluto as the fundamentalwave of longest wavelength and lowest frequency, and successively adding to it the waveamplitudes of Neptune, Uranus, Saturn, and Jupiter, in that order.

Now focusing entirely on the year 1948, due to all factors discussedabove, we get the following curve or mass pressure chart for 2008. Thiscurve indicates that the best buying opportunities should form February 15th

to 17th, with a potential for another low around March 17th to 19th. Thelargest % gain should occur from these low levels into the 2nd week of Junearound the 15th. A secondary top may also occur in the 2nd week of Julyaround the 12th if you are still holding onto wining positions at this time. Themarket is anticipated to decline from these levels into the 2nd week of Augustaround the 12th with a potential bounce rally into September 7th. The secondbest buying opportunity of the year is indicated at the projected lows for theend of September around the 30th. From these levels, the market couldexperience a very rapid 1-month rise into October 29th. The followingdecline is expected to be sharp and severe, so one must either side withcaution and/or exit early or be highly observant and nimble with their

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positions. The final opportunity to buy is indicated at the potential lows atthe end of November followed by a “Christmas rally” into year-end.

My “Money Trail” curve, which anticipates the markets generaldirection 5 weeks in advance, indicates a rally for the month of February. Inaddition, those familiar with my “Market Opportunist” system based onmarket breadth know that it has given a recent buy signal, which is typicallygood for a minimum 18% advance in the averages.

Money Flow is a displaced 5-period rate of change of the Yield Gap between stocks and high grade bonds.

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IMPORTANT DATES FOR CHANGE IN THE MAJOR TREND

The following dates should be watched for important changes in the majortrend of all individual stocks and stock market averages or indices. If anystock makes top or bottom around any of these dates, you can anticipate areversal in trend, especially if there is a sharp decline or a sharp advancearound these dates: Feb 8th to 10th, March 21st to 23rd, May 3rd to 7th,June 20th to 24th, August 3rd to 8th, Sept 21st to 24th, Nov. 8th to 11th,Dec. 20th to 24th. These dates are based upon a permanent cycle, whichdoes not change. Important tops and bottoms are made in many stocks everyyear around these times. Watch the stocks that reach extreme high or lowlevels around these natural dates.

DATES FOR ACTIVITY AND WIDE FLUCTUATIONS

The following dates indicate times when stocks will be very active and havewide fluctuations, making tops and bottoms. While all stocks will not maketops and bottoms around these dates, some of the most active ones will andif you watch the ones that turn around these dates, it will prove helpful inyour trading:

January 1st, 6th & 25th

February 2nd, 4th, the 12th to 15th, 17th & 29th


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March 3rd, 9th, 17th to 19th, 22nd & the 27th to 29th

April 23rd

May 2nd, 16th, 19th & 27th

June 7th, 14th, 22nd, 24th & 29th

July 12th, 20th & 28th

August 1st to 3rd, 5th, 11th, 21st, 25th & 30th to 31st

September 7th, 13th, 15th, 21st, 25th & 28th

October 7th, 10th, 26th & 29th

November 2nd to 3rd, 4th to 5th, 14th, 19th & 30th

December 13th & 19th

Due to the 5-month cycle, the 10th to 14th of the following months should bemonitored for swing highs and lows in most share values. This has been avery strong and persistent cycle for many years and must be monitored forpotential flips or inversions. The last of which occurred December 05. Sincethis time, the 5-month cycle has maintained a perfect saw tooth pattern.

Overall 2008 should be a down year for the stock market. Thedominant cycles (36-yr, 10-yr, 41-month & 24-months) are all in downwardphases of their movements, which should cause all declines to be muchsharper due to the combined weight or influence of these cycles. We have

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already declined 19% from the highs of October 2007 and the original cyclicmodel indicates that the end of the year should be around 1250 to 1240 pricelevels on the S&P500. Mass Pressure indicates a similar bearish outlook butonly ending down only 2% or so. Both Spectral Analysis and my originalcycle work presented in Wheels Within Wheels forecast a similar downwardtrend or market curve.



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January Effect – The last week of January closed lower than the first week,which typically indicates a down year and further supports the prior analysis.For more information on this subject, refer to Wheels Within Wheels.

2-1-2 Pattern: Within Gann’s 10-year pattern of 5 years of advancing pricesfollowed by 5 years of declining prices, he further divided and broke downthe 5 year segments as 2 years up, 1 year down, 2 years up totaling up as thegeneralized 5 year segment. The chart below illustrates this basic pattern as afixed numerical cycle without using the Saturn cycle, which is the actualtime factor used to measure this market pattern. As you can see, even as afixed measurement, it has called the market fairly well. Using the actualturning points caused by Saturn, we should downtrend well into April-Mayfor the 1-year down component of this 2-1-2 pattern.

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Now just to clarify Gann’s stock market work, when you factor the above10-yr pattern (5 up & 5 down), with the 212 pattern (2 up, 1 down, 2 up)along with Gann’s 30 yr trend, which simply says that the stock markettends to rise for 17-yrs and consolidate for 13 years, you get the followingsequence, which basically repeats every 30-yrs. Gann worded it as: the 2nd

Bull market ends in the 17th year, after which a sideways pattern begins for13-years.


I have intentionally illustrated this pattern from 1982 to 2012 so you can seethe elegant simplicity and forecasting value of this perspective of marketbehavior. Also note that during the 13-year sideways consolidation patternthat the 1-yr declines of the 212-pattern completely retrace the 2-yearadvancing component of this sequence. According to Gann, this patternrepeats over and over, with the next 30-yr cycle beginning in 2012, which isjust a repeat of the 30-yrs illustrated above. This 30-yr pattern was extremelyimportant in all of Gann’s annual stock market forecasts.


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PUBLIC CONFIDENCE FOR 2008: As long as the public believes thateverything is all right, they will hold on expecting higher prices, but whenpublic buying power has exhaust itself at the end of major cycles we findthat the largest number of stock speculators in history lose confidence andall start to sell, it requires no stretch of imagination to picture what willhappen. When the time cycles are up, neither Republicans, Democrats norour hopes for a good President can stem the tide. As Gann says, it is anatural 1aw. Already the news is full of recession fears coupled with thehigher costs of living due to high oil and energy prices. We see it in the ebband flow of the tides and we know that from the full bloom of summeralways follows the dead leaves of winter. Most investors do not think; theyalways invest on hope and that is why they lose. Investors and traders mustpause and think and use all available information to manage their holdings.

WAR: Overall, our nations prosperity causes jealousy throughout the world,and as economic conditions get worse in foreign countries, greed and,jealousy will lead to greater resentment and potentially war. As the oldsaying goes; “It is the hungry dog that starts the fight.” A study of the riseand fall of nations shows that when any country enjoys unusual prosperityfor a long period of time, war is one of the main causes of the start ofrecessions. While most Americans grow tired of the situation in Iraq and theso called “War on Terror”, we will likely hear a lot of talk about peace fromour newly elected leader. However, the facts show that many of the leadingforeign countries as well as our own country, are spending more moneypreparing for war than they are for peace. Gann wrote: “When a man or acountry is armed and gets ready to fight, he usually gets what he is readyfor.” Although 2008 is unlikely to see any further escalation of war, cyclesindicate that 2009 to 2010 could see a rise in international warfare endingwith more peaceful and prosperous times beginning in 2010.

The Dollar, Gold & Oil: Although demand for these commodities willremain high, we are likely to see prices decline due to reactions caused bythe minor cycles and a likely rise in the US dollar. Both commodities arepriced in dollars and as the US dollar has weakened over the last severalyears, these commodities and others have risen accordingly. In fact, theGovernment’s “economic stimulus plan” that plans on giving mostAmericans a rebate around $1200 is somewhat comical when you look at theweak dollar. Basically, they are giving you a rebate at low value levelsknowing that they are going to stimulate the dollar causing you to pay them

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back at higher values. From 2001 to present, the dollar has declinedapproximately 40%. If you discount the current $3.00/gallon gas prices atthe pump by 40%, you find that Gas would be about $1.80 if the dollar hadremained stable or strong. Gold would be about $550/ounce instead of $916but most don’t pay attention to the fact that these things are priced in dollars.There has been some increased demand for these commodities, butunderstand that the majority of their price appreciation has really beencaused by a declining dollar. This fact has also caused large-scale foreignownership of our stocks. Foreign investors, especially “oil rich” nations havebeen taking advantage of their strong currencies relative to ours, bypurchasing significant ownership of our major corporations.

The Economy- The economy is due to reach its lowest point in the 18.6-yrcycle around December 2008. From here it is anticipated to begin improvingback to normal conditions into July 2013. In prior published materials Iwrote the following: “In general, the economy usually runs in cycles of 4.65years or 4-years and 8-months if you prefer. As a basic rule, the economywill advance above normal for 4.65 years, then decline back to more normallevels over the next 4.65, then drop to below normal over the next 4.65 yearsand then return back to normal, where the business cycle starts all overagain. This cycle in total measures about 18.6 years. Under this basicscenario, the economy was due to reach a peak in it’s above normal phase inAugust of 1999. It should continue to decline for 9.3 years (9-years 4-months) where it will reach it’s below normal level. So this basically meansthat economic conditions will slowly decay until the year 2008, whenconditions will start to improve again. This cycle is harder to find ineconomic data because of the “Wealth Effect” that is created in strong bullmarkets, which tends to somewhat hide this cycle. But if you subtract 4-years& 8-months from August 1999, you get the year 1994, which was consideredto be a mini-recession during Clinton’s first term as president. In any event,I have found this to be a useful tool since economists, as a general rulecannot seem to do anything more than analyze the past. I was certainlyprepared for the new economy to potentially reach a peak in 1999 based onthis simple information. Again, forewarned is forearmed. Only time will tellif this basic economic cycle continues to prove true, but now at least youhave the information, which is better than nothing at all. Here is a picture ofhow it basically looks”:



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Therefore, the 18.6-year Economic cycle within the larger Stock Marketcycles (36-year, 10-year, 41-month & 24-month) and Gann’s 30-year patternsupport 2008 as a negative stock market year with poor economic conditionsadding weight to its decline.

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2008 Monthly outlook based on 1948 & historical patterns

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These monthly curves represent historical trends and turning points tohelp short term traders identify potential trend changes and/or otherreversals. The time of the change tends to be more accurate then thedirection, but overall, these should provide you with useful information. Thebest approach is to use all tools available. Aggressive traders should buy alllows that are 10% below the last swing high if the “Market Opportunist”breadth indicator is –400 or lower. Market tops are more difficult to identifybut typically this indicator is pretty accurate during Bear Market phases sowatch +400 readings or greater for potential selling indications. Always takethe perspective of TIME into account to determine if these technicalindications are occurring at the anticipated points in time. Those of you whoown Keys to Successful Speculation should follow the swing trade andmoney management rules to maximize profits while keeping losses in check.


It is also very important to use and project the following Gann angleson the Dow Jones Industrial Average and the S&P500. The 1x 1 angle beingthe most useful for projecting support or resistance trends ahead of themarket. The correct rates of change based on the Master Time and PriceSquares are as follows:

Dow S&P500

1 x 2 = 3.74 pts/day 1 x 2 = 0.625 pts/day1 x 1 = 7.48 pts/day 1 x 1 = 1.25 pts/day2 x 1 = 14.97 pts/day 2 x 1 = 2.5 pts/day3 x 1 = 22.46 pts/day 3 x 1 = 3.75 pts/day4 x 1 = 29.95 pts/day 4 x 1 = 5.00 pts/day

These are all based on calendar days, not trading days so adjust your chartsaccordingly. Those who utilize these angles on their charts will find them ofvalue. Particularly in combination with the other trading tools mentionedprior. I’m including my last Trader’s World article on this subject so you cansee how well the geometry of these angles work in the markets.

Also due to the importance of the 5-month cycle, I have included the sawtooth chart below along with the dates that the Bradley Siderograph changestrend, which may allow you more precise timing within these projectedhighs and lows for the stock market.


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If time permits, I may provide low cost monthly supplements and/oradjustments to this general outlook for 2008.

Market Geometry and Chart Scaling (Traders World Article)

W.D. Gann and George Bayer were both fascinated with the concept of

squaring the circle. Gann discussed this many times in his natural resistance

levels for time and price, his angle courses, seasonal dates for trend changes,

his 1/8th rules, Mylar overlay charts, etc. George Bayer had his hidden in his

“Polish ellipse” and his: Hand Book of Trend Determination.

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Basically the word joke hidden in the term “Polish ellipse” has nothing to do

with the country of Poland. Bayer was referring to the orbits of planets,

which rotate on a North and South Pole axis (i.e. polish) and revolve around

the sun in elliptical orbits.

NATURAL RESISTANCE LEVELS AND TIME CYCLE POINTS

Gann wrote: “The resistance levels given below are based upon natural law and can be

applied to the measurement of both time and space. Around these points stocks meet

resistance going up or down or traveling the same number of points from a top to a

bottom. Tops and bottoms of major and minor movements come out on these resistance

levels.

When man first began to learn to count, he probably used his fingers, counting 5 on one

hand and 5 on the other. Then counting 5 toes on one foot and 5 on the other, which

made 10, he added 10 and 10 together, which made 20, adding and multiplying by 5 and

10 all the way through. This basis for figuring led to the decimal system, which works out

our 5, 10, 20, 30 and other yearly cycles, as well as other resistance points. Man's basis

for figuring is 100, or par, on stocks and $1.00 as a basis of money value. Therefore, the

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1/4, 1/8, 1/16 points are all important for tops and bottoms and for buying and selling

levels.

Taking the basis of 100, the most important points are 25, 50 and 75, which are 1/4, 1/2

and 3/4. The next most important points are 33 1/3 and 66 2/3, which are 1/3 and 2/3

points. The next points in importance are the 1/8 points, which are 12 1/2, 37 1/2, 62 1/2

and 87 1/2. The next in importance are the 1/16th points, which are 6 1/4, 18 3/4, 31 1/4,

43 3/4, 56 1/4, 68 3/4, 81 1/4 and 93 3/4.

There is no top and bottom price, which cannot be determined by mathematics. Every

market movement is the result of a cause and when once you determine the cause, it is

easy enough to know why the effect is as it is. “Man first learned to record and measure

time by the use of the Sun dial, and by dividing the day into 24 hours of 15-degrees in

longitude. The “reflection” of the geometrical angle on the Sundial indicated the time of

day. Since all time is measured by the Sun, we must use the 360 degrees of the circle to

measure time periods for the market.”

Everything moves to a gravity center or to a point halfway between somebottom and top or some other important resistance point. For example: Wedivide the circle of 360° by 2 and get 180. We divide by 4 and get 90; thendivide 90 by 2 and get 45; divide 45 by 2 and get 22 1/2; divide 22 1/2 by 2and get 11 1/4; divide 11 1/4 by 2 and get 5 5/8; divide 5 5/8 by 2 and get 213/16, which is the lowest division of the circle that we can use for timeperiods. Each of these points is 1/2 of one of the other important divisions ofthe circle. Gann’s plastic overlays of the Square of 52, 144, etc. all illustratethis method for scaling a price chart so that price and time balancegeometrically.

George Bayer also hid this same overlay in his “Stock and CommodityTrader’s Hand-Book of Trend Determination. Bayer gives a lot of weirdvalues in exact degrees minutes and seconds, but the entire book canbasically be summed up by a simple formula:The Weird Number = [(360-deg)/(A x 52)] x B. Where “A” is typically avalue of “1”,”2”,”4”, or “6”. In the majority of calculations “B” is usually“1” but there are a few where “B” is “6”, “10” or “15”. The “52” in theabove formula represents the number of weeks in a year. If you don’t have

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an accurate daily ephemeris, you could use a formula like this toapproximate where a given planet may be. If you plot this as a chart, you getan overlay that is nearly identical to Gann’s Square of 52 overlay.

Seven years ago, I illustrated these techniques of balancing price and time with Gann’s

Square of 52 overlay in the article titled “Mathematical Formula For Market Predictions.”

This article charted the Dow on a 2-year chart from 1998 to 2000.

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If you want any of Gann’s geometric techniques to work, you must scale your charts

based on this overlay pattern, which is itself based on “Squaring the Circle.” Typically, if

I am looking at something new, I scale my chart using a 2-year or 4-year overlay so that I

have enough data to make sure that all calculations are accurate before setting up my

square for the current year. Once the chart scaling has been fit with the data, everything

that W.D. Gann said about market geometry begins to works like magic. I have been

using the same charting scales for the Dow and S&P for over 10-years now without any

change.

The following charts illustrate the geometry of Gann’s 1x1, 2x1, and 3x1 angles on graph

paper style charting based on the above scaling method. Also, I have included the

recently completed 2-year square of the S&P as well as the current 2-year square, which

began September 22nd, 2006. The charts speak their own language; so I will just end this

article here and let the pictures do the rest of the talking.

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Wishing You A Success,

Daniel Ferrera

“Past performance is not indicative of future results”. You should understand that there is considerable riskof loss in the Stock Markets, Futures Markets and Option markets. Neither I, nor anyone else involved inthe production of this material, will be liable for any loss, damage or liability directly or indirectly causedby the usage of this material. The data used in this material is believed to be from reliable sources butcannot be guaranteed. The projection methods and/or timing techniques contained in this document are notto be taken as “investment advice”. Ultimately, you are responsible for all of your investment decisions. Ifyou are unwilling to accept this responsibility, then you should not invest in the financial markets at all.The outlook for 2008 is being presented a educational information designed for entertainment purposesonly. It is understood that nobody can accurately forecast the future with any reliability.

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